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  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    The Economics of Climate Change

    Anastasios Xepapadeas

    Athens University of Economics and Business and Beijer Fellow

    Athens, June 2016

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 1 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    Earths average temperature has risen by 1.4F over thepast century, and is projected to rise another 2 to 11.5Fover the next hundred years. Small changes in the averagetemperature of the planet can translate to large andpotentially dangerous shifts in climate and weather.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 2 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 3 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    People, through their consumption and productiondecisions, emit greenhouse gasses (GHGs). Carbon dioxideis especially important, accounting for aroundthree-quarters of the human-generated global warmingeect; other relevant GHGs include methane, nitrousoxide, and hydrouorocarbons (HFCs).

    These ows accumulate into stocks of GHGs in theatmosphere. It is overall stocks of GHGs that matter, andnot their place of origin. The rate at which stockaccumulation occurs depends on the "carbon cycle,"including the earths absorptive capabilities and otherfeedback eects.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 4 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    People, through their consumption and productiondecisions, emit greenhouse gasses (GHGs). Carbon dioxideis especially important, accounting for aroundthree-quarters of the human-generated global warmingeect; other relevant GHGs include methane, nitrousoxide, and hydrouorocarbons (HFCs).

    These ows accumulate into stocks of GHGs in theatmosphere. It is overall stocks of GHGs that matter, andnot their place of origin. The rate at which stockaccumulation occurs depends on the "carbon cycle,"including the earths absorptive capabilities and otherfeedback eects.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 4 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    The stock of GHGs in the atmosphere traps heat andresults in global warming: how much depends on "climatesensitivity. The process of global warming results inclimate change.

    Many places have seen changes in rainfall, resulting inmore oods, droughts, or intense rain, as well as morefrequent and severe heat waves. The planets oceans andglaciers have also experienced some big changes - oceansare warming and becoming more acidic, ice caps aremelting, and sea levels are rising.

    Climate change aects people, species, and plants in avariety of complex ways, most notably via water in someshape or form: storms, oods, droughts, sea-level rise.These changes will potentially transform the physical andhuman geography of the planet, aecting where and howwe live our lives. Each of these ve links involvesconsiderable uncertainty.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 5 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    The stock of GHGs in the atmosphere traps heat andresults in global warming: how much depends on "climatesensitivity. The process of global warming results inclimate change.

    Many places have seen changes in rainfall, resulting inmore oods, droughts, or intense rain, as well as morefrequent and severe heat waves. The planets oceans andglaciers have also experienced some big changes - oceansare warming and becoming more acidic, ice caps aremelting, and sea levels are rising.

    Climate change aects people, species, and plants in avariety of complex ways, most notably via water in someshape or form: storms, oods, droughts, sea-level rise.These changes will potentially transform the physical andhuman geography of the planet, aecting where and howwe live our lives. Each of these ve links involvesconsiderable uncertainty.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 5 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    The stock of GHGs in the atmosphere traps heat andresults in global warming: how much depends on "climatesensitivity. The process of global warming results inclimate change.

    Many places have seen changes in rainfall, resulting inmore oods, droughts, or intense rain, as well as morefrequent and severe heat waves. The planets oceans andglaciers have also experienced some big changes - oceansare warming and becoming more acidic, ice caps aremelting, and sea levels are rising.

    Climate change aects people, species, and plants in avariety of complex ways, most notably via water in someshape or form: storms, oods, droughts, sea-level rise.These changes will potentially transform the physical andhuman geography of the planet, aecting where and howwe live our lives. Each of these ve links involvesconsiderable uncertainty.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 5 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 6 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 7 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 8 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    Source: Environmental Protection Agency (EPA),http://www.epa.gov/climatechange/

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 9 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 10 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    What is Climate Change? Evidence and Mechanisms

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 11 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Damages

    Under business as usual (BAU), over the next twocenturies we are likely to see change at a rate that isfast-forward in historical time and on a scale that theworld has not seen for tens of millions of years.

    The science clearly shows that the probability andfrequency of oods, storms, droughts, and so on, is likelyto continue to grow with cumulative emissions, and thatthe magnitude of some of these impacts could becatastrophic.

    The task of economists is to take the science, particularlyits analysis of risks, and think about its implications forpolicy. Only by taking the extraordinary position that thescientic evidence shows that the risks are denitelynegligible should economists advocate doing nothing now.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 12 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Climate Change: A global externality

    Externalities

    Environmental and resource economics have long beenassociated with the concepts of externalities and marketfailure. An externality is present when the well-being(utility) of an individual or the production possibilities of arm are directly aected by the actions of another agentin the economy.

    When externalities are present the competitive equilibriumis not Pareto optimal. A market failure takes place

    Climate change represents the greatest andwidest-ranging market failure ever seen. Climatechange is considered as the mother of all externalities

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 13 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Climate Change: A global externality

    Externalities

    Environmental and resource economics have long beenassociated with the concepts of externalities and marketfailure. An externality is present when the well-being(utility) of an individual or the production possibilities of arm are directly aected by the actions of another agentin the economy.

    When externalities are present the competitive equilibriumis not Pareto optimal. A market failure takes place

    Climate change represents the greatest andwidest-ranging market failure ever seen. Climatechange is considered as the mother of all externalities

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 13 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Climate Change: A global externality

    Externalities

    Environmental and resource economics have long beenassociated with the concepts of externalities and marketfailure. An externality is present when the well-being(utility) of an individual or the production possibilities of arm are directly aected by the actions of another agentin the economy.

    When externalities are present the competitive equilibriumis not Pareto optimal. A market failure takes place

    Climate change represents the greatest andwidest-ranging market failure ever seen. Climatechange is considered as the mother of all externalities

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 13 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Characteristics of the Climate Change Externality

    1 It is global in its origins and impacts;

    2 Reducing emissions is an extreme global public good,meaning that no single nation can capture for itself asubstantial part of the benets from its own emissionreductions (free riding incentives)

    3 Some of the eects are very long term and governed by aow-stock process with positive non-near feedbacks;

    4 There is a great deal of uncertainty in most steps of thescientic chain; and

    5 The eects are potentially very large and many may beirreversible

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 14 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Characteristics of the Climate Change Externality

    1 It is global in its origins and impacts;2 Reducing emissions is an extreme global public good,meaning that no single nation can capture for itself asubstantial part of the benets from its own emissionreductions (free riding incentives)

    3 Some of the eects are very long term and governed by aow-stock process with positive non-near feedbacks;

    4 There is a great deal of uncertainty in most steps of thescientic chain; and

    5 The eects are potentially very large and many may beirreversible

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 14 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Characteristics of the Climate Change Externality

    1 It is global in its origins and impacts;2 Reducing emissions is an extreme global public good,meaning that no single nation can capture for itself asubstantial part of the benets from its own emissionreductions (free riding incentives)

    3 Some of the eects are very long term and governed by aow-stock process with positive non-near feedbacks;

    4 There is a great deal of uncertainty in most steps of thescientic chain; and

    5 The eects are potentially very large and many may beirreversible

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 14 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Characteristics of the Climate Change Externality

    1 It is global in its origins and impacts;2 Reducing emissions is an extreme global public good,meaning that no single nation can capture for itself asubstantial part of the benets from its own emissionreductions (free riding incentives)

    3 Some of the eects are very long term and governed by aow-stock process with positive non-near feedbacks;

    4 There is a great deal of uncertainty in most steps of thescientic chain; and

    5 The eects are potentially very large and many may beirreversible

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 14 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Characteristics of the Climate Change Externality

    1 It is global in its origins and impacts;2 Reducing emissions is an extreme global public good,meaning that no single nation can capture for itself asubstantial part of the benets from its own emissionreductions (free riding incentives)

    3 Some of the eects are very long term and governed by aow-stock process with positive non-near feedbacks;

    4 There is a great deal of uncertainty in most steps of thescientic chain; and

    5 The eects are potentially very large and many may beirreversible

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 14 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations The role of economic analysis

    1 Deal with risk and uncertainty (deep structuraluncertainty);

    2 Understand links between economics and ethics (trade-osand distribution both within and between generations), aswell as notions of distribution across nations (responsibilityof rich vs poor countries)

    3 International economic policy and cooperation toformulate policies.

    4 Policy formulation is impeded by free riding anddistributional issues

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 15 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations The role of economic analysis

    1 Deal with risk and uncertainty (deep structuraluncertainty);

    2 Understand links between economics and ethics (trade-osand distribution both within and between generations), aswell as notions of distribution across nations (responsibilityof rich vs poor countries)

    3 International economic policy and cooperation toformulate policies.

    4 Policy formulation is impeded by free riding anddistributional issues

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 15 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations The role of economic analysis

    1 Deal with risk and uncertainty (deep structuraluncertainty);

    2 Understand links between economics and ethics (trade-osand distribution both within and between generations), aswell as notions of distribution across nations (responsibilityof rich vs poor countries)

    3 International economic policy and cooperation toformulate policies.

    4 Policy formulation is impeded by free riding anddistributional issues

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 15 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations The role of economic analysis

    1 Deal with risk and uncertainty (deep structuraluncertainty);

    2 Understand links between economics and ethics (trade-osand distribution both within and between generations), aswell as notions of distribution across nations (responsibilityof rich vs poor countries)

    3 International economic policy and cooperation toformulate policies.

    4 Policy formulation is impeded by free riding anddistributional issues

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 15 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations International Climate Change Policy

    The agreed framework for all international climate-changedeliberations is the United Nations Framework Conventionon Climate Change, ratied in 1994. That documentstated, The ultimate objective is to achieve stabilizationof greenhouse gas concentrations in the atmosphere at alevel that would prevent dangerous anthropogenicinterference with the climate system.

    The Framework Convention was implemented in the KyotoProtocol in 1997. The Kyoto Protocol currently coversonly 27% of global emissions. The Kyoto Protocol setsemissions targets for developed countries which arebinding under international law.

    The Kyoto Protocol has had two commitment periods, therst of which lasts from 2005-2012, and the second2012-2020. The US has not ratied the Kyoto Protocol.The Kyoto Protocol has been ratied by all the otherAnnex I Parties.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 16 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations International Climate Change Policy

    The 2009 Copenhagen Accord adopts a target of limitingthe increase in global mean temperature, recognizing thescientic view that the increase should be below 2 degreesCelsius.

    The Cancun agreements adopted by the Convention ofparties (COP) in 2010 states that global warming shouldbe limited to below 2.0 C (3.6 F) relative to thepre-industrial level. This target may be strengthened "onthe basis of the best available scientic knowledge,including in relation to a global average temperature riseof 1.5 C"

    In 2011, parties adopted the "Durban Platform forEnhanced Action and agreed to "develop a protocol,another legal instrument or an agreed outcome with legalforce under the Convention applicable to all Parties

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 17 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations International Climate Change Policy

    At Durban 2011 and Doha 2012 parties noted "with graveconcern" that current eorts to hold global warming tobelow 2 or 1.5 C relative to the pre-industrial level appearinadequate.

    The Doha Amendment (2012) is a proposal in which 37countries have binding targets: Australia, the EuropeanUnion (and its 28 member states), Belarus, Iceland,Kazakhstan, Liechtenstein, Norway, Switzerland, andUkraine.

    Negotiations were held in Paris in 2014 to agree on apost-Kyoto legal framework that would obligate all majorpolluters to pay for CO2 emissions. China, India, and theUnited States have all signaled that they will not ratifyany treaty that will commit them legally to reduce CO2emissions.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 18 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Paris, December 2015

    The highlights of the Paris Agreement are:

    To hold the increase in the global average temperature towell below 2C above pre-industrial levels. This is a moreambitious objective than in previous internationalagreements on climate change. Furthermore, in aconcession to small island states and other highlyvulnerable states, the text also includes an aspiration tolimit the temperature increase to 1.5C.

    To aim to reach global peaking of greenhouse gasemissions as soon as possible, while recognising thatpeaking will take longer for developing countries. While notarget year has been set for this emissions peak, there is along-term commitment to "achieve a balance betweenanthropogenic emissions by sources and removals by sinksof greenhouse gases in the second half of this century".This eectively translates into a goal of net zero emissionsto be achieved at some point beyond 2050.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 19 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Economic Considerations Paris, December 2015

    To put in place an ongoing framework that will encouragecountries to communicate and update their climate policytargets, in the form of intended nationally determinedcontributions (INDCs), on a regular ve-yearly basis. Theagreement establishes a framework of ve-yearly"stocktakes" of progress made on climate policies from2018, and these in turn will form the basis of submissionsto be made by countries to strengthen their commitmentsto reduce emissions. These periodic national commitmentsare to be submitted every ve years from 2020. Theagreement therefore sets in motion a framework for anongoing review of strategies to strengthen emissionsreduction commitments over time.To guarantee continued and enhanced climate nancefrom the developed world to assist developing countries toadopt a lower emissions pathway and build climateresilience into their economies. A target of US$100bn is tobe provided annually by 2020.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 20 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization Stock stabilization and policy instruments

    The increase in global temperature relates to the stock ofgreenhouse gasses (GHGs), thus the achievement oftemperature targets requires stabilization of stocks.Two type of instruments to regulate externalities:Quantity instruments: Emission reductions (mitigation) byquantity restrictions so that the target is attained.

    Quantity instruments could lead to the creation of marketsfor emission permits with the overall quantity constraint issatised. Emissions trading or cap and trade (e.g. TheEuropean Union Emissions Trading System (EU ETS), orScheme, was the rst large greenhouse gas emissionstrading scheme in the world, and remains the biggest.

    Price instruments: Reduce emission by pricing carbonaccording to the marginal damages induced by GHGs.(e.g. Carbon tax)

    Price instruments are sensitive to ethical and structuralassumptions on the future and the risk of major losses dueto irreversibilities.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 21 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization Stock stabilization and policy instruments

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 22 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization Stock stabilization and policy instruments

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 23 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization Cost of Stabilization

    According to the Stern Review (Stern 2007) Starting at430ppm C02e, stabilizing at 550ppm C02e or below would likelycost around 1 percent of world GDP per annum with goodpolicy and timely decision making ; for stabilization at 450ppmC02e, it might cost 3 or 4 times as much (possibly more).

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 24 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization Cost of Stabilization

    PoliciesEU 20, 20, 20 low carboneconomy

    20% reduction in EUGHG emissions from 1990levels;

    Raising the share of EUenergy consumptionproduced from renewableresources to 20%;

    20% improvement in theEUs energy e ciency.Particular measuresNational targets fornon-EU ETS emissions

    Carbon capture andstorage

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 25 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization The Social Cost of Carbon (SCC)

    The marginal social cost of carbon (SCC) reects the futuredamage of an incremental emission.It is important for policy, because it gives us an understandingof where carbon prices (or GHG prices more generally) shouldbe. This will help deciding about the optimal level of reductionof GHGs emissions.The SCC at time t is dened by:

    The marginal social utility of consumption at t(embodying ethical values and a particular path)

    The impact on consumption at t of all relevant precedingtemperature changes (and resultant climate change)The impact on a relevant temperature increase of increasesin preceding carbon stocksThe impact on all relevant stocks of an increase in carbonemissions at t, where impact in the above is to beinterpreted as a partial derivative.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 26 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization The Social Cost of Carbon (SCC)

    However, the SCC is very slippery numerically since it is sosensitive to assumptions about model structure, includingfuture emissionpaths, carbon cycles, climate sensitivity, future technologies,and ethical approaches to valuation over the centuries to come.

    SCCt =

    k=2

    1

    (1+ )t+ku0 (ct+k )

    ct+kTt+k

    k1t=1

    Tt+kSt+k

    St+kEt

    !(1)

    u (c) : utility of consumption c ; T global average temperature;S stock of GHGs, E emissions of GHGs, utility discount rate.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 27 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization The Social Cost of Carbon (SCC)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 28 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization The Social Cost of Carbon (SCC)

    Given this sensitivity, it is remarkable how carelessly theSCC is often quoted it is quite common, for example, forpeople to quote an SCC without even referring to areference emissions path

    Thus, the SCC is a very weak foundation for policy. Thetarget emission reduction approach and thecalculation of the associated MAC is more attractivefrom the point of view both of policy toward risk and ofclarity of conclusions.

    It is also important, however, to check prices derived fromthe MAC against SCC calculations and to keep policyunder revision, as further information and discovery arrives.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 29 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization The Social Cost of Carbon (SCC)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 30 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Stabilization The Social Cost of Carbon (SCC)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 31 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs

    The understanding of the links and interactions betweenthe economy and the forces shaping climate change sothat policy design regarding stabilization should bedisciplined by science. This requires formal modeling.

    This task is performed by aggregate models which coupleclimate and the economy. These models have beenpopular in the economics of climate change. They attemptto integrate the science of climate change, as expressed,for example, via General Circulation Models (GCMs), witheconomic modelling based on models of economic growth.These models called integrated assessment models, orIAMs.The IAMs contain an Economic module and a Climatemodule. The two modules are coupled and they containdecision variables such as emissions, or abatement.

    Choosing these decision variables in some desirable waywill provide policy rules.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 32 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs

    The understanding of the links and interactions betweenthe economy and the forces shaping climate change sothat policy design regarding stabilization should bedisciplined by science. This requires formal modeling.

    This task is performed by aggregate models which coupleclimate and the economy. These models have beenpopular in the economics of climate change. They attemptto integrate the science of climate change, as expressed,for example, via General Circulation Models (GCMs), witheconomic modelling based on models of economic growth.These models called integrated assessment models, orIAMs.

    The IAMs contain an Economic module and a Climatemodule. The two modules are coupled and they containdecision variables such as emissions, or abatement.

    Choosing these decision variables in some desirable waywill provide policy rules.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 32 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs

    The understanding of the links and interactions betweenthe economy and the forces shaping climate change sothat policy design regarding stabilization should bedisciplined by science. This requires formal modeling.

    This task is performed by aggregate models which coupleclimate and the economy. These models have beenpopular in the economics of climate change. They attemptto integrate the science of climate change, as expressed,for example, via General Circulation Models (GCMs), witheconomic modelling based on models of economic growth.These models called integrated assessment models, orIAMs.The IAMs contain an Economic module and a Climatemodule. The two modules are coupled and they containdecision variables such as emissions, or abatement.

    Choosing these decision variables in some desirable waywill provide policy rules.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 32 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs

    The understanding of the links and interactions betweenthe economy and the forces shaping climate change sothat policy design regarding stabilization should bedisciplined by science. This requires formal modeling.

    This task is performed by aggregate models which coupleclimate and the economy. These models have beenpopular in the economics of climate change. They attemptto integrate the science of climate change, as expressed,for example, via General Circulation Models (GCMs), witheconomic modelling based on models of economic growth.These models called integrated assessment models, orIAMs.The IAMs contain an Economic module and a Climatemodule. The two modules are coupled and they containdecision variables such as emissions, or abatement.

    Choosing these decision variables in some desirable waywill provide policy rules.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 32 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs Structure

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 33 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs Structure

    Figure: The coupled climate economy system

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 34 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The RICE-2010 Model (Nordhaus PNAS)

    Name Type ReferenceDICE-99 Aggregated Optimal Growth NordhausRICE-2010 Aggregated Optimal Growth NordhausFUND Aggregated Optimal Growth TolWITCH Aggregated Optimal Growth FEEM, Bosseti et al.IMAGE Dynamic process simulation Bowman et al.MERGE Aggregated Optimal Growth Manne and RichelsPAGE Aggregated Simulation Hope

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 35 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The RICE-2010 Model (Nordhaus PNAS)

    The RICE model modies the Ramsey growth model toinclude climate investments. The capital stock of theconventional model is extended to include investments inthe environment (natural capital). It viewsconcentrations of GHGs as negative natural capital andemissions reductions as lowering the quantity of thatnegative capital.

    Emissions reductions lower consumption today but, bypreventing economically harmful climate change, increaseconsumption possibilities in the future.

    The model divides the world into 12 regions. Each regionis assumed to have a well-dened set of preferences,represented by a social welfare function, and to optimizeits consumption, GHG policies, and investment over time.The social welfare function is increasing in the per capitaconsumption of each generation, with diminishing marginalutility of consumption.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 35 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The RICE-2010 Model (Nordhaus PNAS)

    The relative importance of dierent generations ismeasured using a pure rate of time preference, and thecurvature of the utility function is given by the elasticity ofthe marginal utility of consumption.

    These parameters are calibrated to ensure that the realinterest rate in the model is close to the average realinterest rate and the average real return on capital inreal-world markets (7, 8).

    The model contains both a traditional economic sector likethat found in many economic models and geophysicalrelationships designed for climate-change modeling.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 36 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The RICE-2010 Model (Nordhaus PNAS)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 37 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The RICE-2010 Model (Nordhaus PNAS)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 38 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The RICE-2010 Model (Nordhaus PNAS)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 39 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs RICE-2010 Output

    Policy Scenarios

    Baseline: No climate-change policies are adopted.

    Optimal: Climate-change policies maximize economicwelfare, with full participation by all nations starting in2010 and without climatic constraints.

    Temperature-limited: The optimal policies are undertakensubject to a further constraint that global temperaturedoes exceed 2 C above the 1900 average.

    Copenhagen Accord: High-income countries implementdeep emissions reductions similar to those included in thecurrent US proposals, with developing countries followingin the next 2 to 5 decades.

    Copenhagen Accord with only rich countries: High-incomecountries implement deep reductions as in scenario 4, butdeveloping countries do not participate until the 22ndcentury.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 40 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs RICE-2010 Output

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 41 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs RICE-2010 Output

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 42 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs The Policy Ramp

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 43 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Modeling and Policy Design: IAMs Costs and Benets

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 44 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Strategic behavior

    Non cooperative behavior by the countries. Each countrychooses abatement to maximize own welfare and notglobal welfare

    A noncooperative Nash equilibrium leads to carbon pricesand emissions reductions that are much lower than optimal

    Intergenerational tradeo. Climate-change policies requirecostly abatement in the near term to reduce damages inthe distant future. The delayed payos reinforce theincentives of the noncooperative equilibrium, so thetemptation is high to postpone taking the costly steps toreduce emissions.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 45 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Strategic behavior

    International cooperation is di cult because of:Free riding incentives and global externality. Stabilizationis costly, so there is incentive to avoid stabilization andfree ride on the global climate benets generated bystabilization undertaken by others.Prisoners dilemma: The size of the stable coalition ofcooperating countries is small

    Spatial asymmetry between winners and losers amongcountries. This asymmetry reinforces the tendency ofcountries to move to their noncooperative equilibrium.Kyoto and Copenhagen regimes have adopted acap-and-trade structure. These have the theoreticaladvantage that they can coordinate emissions reductionsacross countries in an e cient manner. However, thesetheoretical advantages have proved illusory to date.Economists often point to harmonized carbon taxes as amore e cient and attractive regime. But this does notseem politically feasible

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 46 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Discounting for the future

    A high discount rate gives less weights to the welfare offuture generations relative to the present. If benetsaccrue in the future a high discount rate reduces them alot relative to costs. The opposite holds for a low discountrate.

    This is an ethical issue

    Ramsey equation

    SDR = + g (2)

    u (c) =c1

    1 , g =cc, u (c) et (3)

    SDR: social discount rate, : pure time preference rate, elasticity of marginal utility (intertemporal distribution,attitudes towards risk), rate of growth of consumption.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 47 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Discounting for the future

    Stern (AER 2008): 1, 2; very low (e.g. 0.1%) ,g 1.5% 2.5% then SDR 1.5%-5% Stern review( = 1) adopts the low bound of this range

    Nordhaus (DICE 2007) = 1.5%, = 2, SDR 5.5%Social discount rates should be declining - not constantover time - for projects related to climate change underuncertainty regarding the future rate of return on capitaland the consumption rate of growth (Weitzman, Gollier)

    SDR = + g 0.522g (4)

    consumption at time t, is independently and identicallynormally distributed with mean g and variance

    2g . The

    term 0.522g is the precautionary eect that reduces theSDR.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 48 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Discounting for the future

    Gollier (2008) proves that if shocks to consumption arepositively correlated and u(c) exhibits CRRAc1/(1 ), SDRt will decline with time. The intuitionbehind this is that positive shocks to consumption makefuture consumption riskier, increasing the strength of theprecautionary eect in equation (4) as t increases.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 49 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Uncertainty

    High structural uncertainty over the physics ofenvironmental phenomena and climate change whichmakes the assignment of precise probabilistic modelstructure untenable

    High sensitivity of model outputs to controversialmodeling assumptions (for instance,the functional form ofthe chosen damage function and the value of the socialdiscount rate).

    High uncertainty of economic impacts (Pindycks critiqueof IAMs). Concentrate on the distribution of T . If we dolittle or nothing to abate GHG emissions, how much mightthe temperature increase by 2100?

    As a result, separate models may arrive at dramaticallydierent policy recommendations, generating signicantuncertainty over the magnitude and timing of desirablepolicy.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 50 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Uncertainty

    This implies, consistent with IPCC (2007), a 3% loss of GDP in2100 if T reaches 4C.(Pindyck)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 51 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Uncertainty

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 52 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Structural uncertainty

    Economics of low probability, high-impact catastrophesrelated to climate change. Uncertain structural parametersinduce a critical tail fatteningof posterior-predictive distributions. This requires theadoption of stringent policies now than latter in the future(Weitzman 2009)Ambiguity, multiple priors and robust control in climatechange. A precautionary principle (AthanassoglouXepapadeas 2012)The least favorable prior (LFP) is the one that correspondsto the least favorable outcome (the worst-case scenario).

    Climate sensitivity (Meinshausen et al. Nature 2009)A. Xepapadeas (AUEB) Climate Change Athens, June 2016 53 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues The time prole of the policy ramp

    Much of the current scientic discussion about climatechange concentrates around the stringency of policy action(mitigation) and its time prole.

    Nordhaus (2007, 2010, 2011) to increase mitigation eorts(e.g. carbon taxes) gradually

    Stern (2006) justies the call for immediate action on thenormative grounds of using a low discount rate to discountthe future costs of climate change. Weitzman (2009a)argues that the possibility of low probability climatecatastrophes strengthens the case for quick action now tomitigate potential catastrophic climate change.

    Brock, Engstom Xepapadeas (2014) introduce spatialtransport of heat from the equator to the poles andpositive nonlinear feedbacks related to damage reservoirs,such as an endogenously driven polar ice cap and carbonstored in permafrost soil. Damage reservoirs call for quickaction now.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 54 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues The time prole of the policy ramp

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 55 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Key policies that can aect climate change

    1 Mitigation: Reduction in the ow of emissions ofgreenhouse gases (GHGs). (Emission trading, Harmonizedcarbon taxes)

    2 Technology cooperation (low carbon technologies)3 Action to reduce deforestation4 Adaptation: Cope with the detrimental impacts ofclimate change which cannot be avoided. Defensiveinvestment, The poorest countries are more vulnerable toclimate change

    5 Geoengineering: Methods that prevent GHGs fromentering the atmosphere through CCS or methods of solarradiation management (SRM) that either block incomingsolar radiation or increase the planets albedo.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 56 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Key policies that can aect climate change

    SRM, which is also referred to as geoengineering,includes methods that either block incoming solarradiation, or equivalently increase the planets albedo, thatis the capacity of the planet to reect incoming solarradiation

    SRM methods should be dierentiated from actions thatmitigate (reduce or prevent) anthropogenic GHG emissionssuch as carbon capture and storage (CCS)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 57 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Key policies that can aect climate change

    SRM methods work by injecting sulfate aerosols into theatmosphere. They are expected to act rapidly oncedeployed at the appropriate scale, and could potentiallyreduce surface global temperatures within a few months oryears if this were considered desirable.

    This approach mimics what occasionally occurs in naturewhen a powerful volcano erupts.

    The Mount Pinatubo eruption in 1991 injected hugevolumes of sulphur into the stratosphere. The particlesproduced in subsequent reactions cooled the planet byabout 0.5C over the next two years by reecting sunlightback into space.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 58 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Mimicking the volcano

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 59 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues Geoengineering advantages

    Advantages

    It is a quick emergency measure because it directlyaects global temperature by mimicking the impact of alarge volcano.

    SRM methods can be used to buy timeby slowing downthe increase in temperature so that new abatement oremission reducing technologies can be developed.

    It is cheap relative to the cost of large scale mitigation ascurrent studies indicate.

    Geoengineering reduces temperature by blocking incomingsolar radiation.

    Mitigation reduces global temperature by reducing thestock of GHGs, thus allowing larger amounts of outgoingsolar radiation.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 60 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues SRM disadvantages

    Disadvantages

    Negative eects on plants due to reduced sunlight

    Ozone depletion

    More acid depositions

    Less solar radiation available for solar power systems

    Inability of engineering methods to adjust regional climateat desired levels

    Intensied ocean acidication

    We do not really know the consequences of SRM

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 61 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Open Issues SRM disadvantages

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 62 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Concluding Remarks

    Climate change could have very serious impacts on growthand development.

    The costs of stabilizing the climate are signicant butmanageable; delay would be dangerous and much morecostly.

    Action on climate change is required across all countries,and it need not cap the aspirations for growth of rich orpoor countries.

    A range of options exists to cut emissions; strong,deliberate policy action is required to motivate theirtake-up.

    Climate change demands an international response, basedon a shared understanding of long-term goals andagreement on frameworks for action.

    (From the Stern Review)

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 63 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 64 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 65 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 66 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 67 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 68 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 69 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 70 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 71 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 72 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Climate Change Impacts Study Committee, Bank of Greece, 2011

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 73 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Economic Impacts

    Sectoral impacts analyzed

    Water reserves

    Sea level rise

    Fisheries

    Agriculture

    Forests

    Biodiversity

    Tourism

    The built environment

    Transport

    Health

    Mining and quarrying

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 74 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Economic Impacts

    First Scenario: This is the worst-case scenario in terms ofgreenhouse gas emission intensity, called the InactionScenario. It corresponds to no action being taken toreduce anthropogenic greenhouse gas emissions.

    It was estimated that, under this scenario, the totalcumulative cost for the Greek economy over the periodextending till 2100, expressed as GDP loss relative to baseyear GDP, would amount to e701 billion (at constantprices of 2008).

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 75 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Economic Impacts

    Second Scenario: This is the Mitigation Scenario,presumed that the World and Greece would achieve aconsistent and drastic reduction in greenhouse gasemissions within a broader global eort and that, as aresult, the average global temperature would not increaseby more than 2C in Greece.

    The total cumulative cost of the Mitigation Scenario forthe entire period till 2100, expressed in terms of GDP loss,comes to e436 billion (at constant prices of 2008).

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 76 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Economic Impacts

    Third Scenario: Finally, given that an adaptation policyis also necessary in order to reduce the damage fromclimate change, an Adaptation Scenario was examined.Under this scenario, the cost of adaptation policies wouldtotal e67 billion. It must, however, be stressed that theadaptation measures do not eliminate all the damage fromclimate change, but simply contain it.

    Thus, the cumulative cost for the Greek economy of the(now reduced) damage from climate change was estimatedat e510 billion (at constant prices of 2008) over theperiod till 2100. As a result, the total cost for the Greekeconomy under the Adaptation Scenario is the sum of,rst, the cost incurred by the economy on account of theadaptation measures and, second, the cost of the(reduced) damage from climate change; this sum (thetotal cumulative cost through 2100) was estimated ate577 billion (at constant prices of 2008).

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 77 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Economic Impacts

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 78 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    Environmental, Economic, and Social Impacts of Climate Change inGreece Regional Vulnerability Analysis

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 79 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    References

    S. Athanassoglou, A. Xepapadeas, 2012, Pollution Controlwith Uncertain Stock Dynamics: When and How To BePrecautious, Journal of Environmental Economics andManagement, 62 304-320.

    Bank of Greece, 2011, Climate Change Impacts StudyCommittee, http://www.bankofgreece.gr/BoGEkdoseis/ClimateChange_FullReport_bm.pdf

    Barrett S, Lenton TM, Millner A, Tavoni A, Carpenter S,Anderies JM, Chapin FS III, Crpin A-S, Daily G, EhrlichP, Folke C, Galaz V, Hughes T, Kautsky N, Lambin E,Naylor R, Nyborg K, Polasky S, Scheer M, Wilen J,Xepapadeas A, de Zeeuw A (2014) Climate engineeringreconsidered. Nature Climate Change 4:527-529

    Brock, W., Engstrom, G., Xepapadeas, A., 2012. EnergyBalance Climate Models, Damage Reservoirs and the TimeProle of Climate Change Policy. FEEM, Working Paper2012.20

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 80 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    References

    W. Brock, G. Engstrom, A. Xepapadeas, SpatialClimate-Economic Models in the Design of OptimalClimate Policies across Locations, European EconomicReview (2014), 78-103.

    L.P. Hansen, T. Sargent, 2007, Recursive robust estimationand control without commitment, Journal of EconomicTheory 136, 127.

    L.P. Hansen, T. Sargent, 2008, Robustness, PrincetonUniversity Press.

    L.P. Hansen, T. Sargent, G. Turhumambetova, N.Williams, 2006, Robust control and model misspecication,Journal of Economic Theory 128, 4590.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 81 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    References

    Nordhaus, W.D., 2007a. A Question of Balance. YaleUniversity Press, New Haven & London.

    Nordhaus, W.D., 2007b. The Challenge of GlobalWarming: Economic Models and Environmental Policy.Yale University, New Haven, CT.

    Nordhaus, W.D., 2010. Economic aspects of globalwarming in a post-Copenhagen environment. Proceedingsof the National Academy of Sciences of the United Statesof America 107 (26), 1172111726

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 82 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    References

    North, G.R., Cahalan, R.F., Coakley, J.A., 1981. Energybalance climate models. Reviews of Geophysics and SpacePhysics 19 (1), 91121.

    N. Stern, 2007. The Economics of Climate Change: TheStern Review.Cambridge University Press, Cambridge.

    N. Stern, 2008. The Economics of Climate Change,American Economic Review, Papers & Proceedings 98:2, 137.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 83 / 84

  • ClimateChange

    A.Xepapadeas

    What isClimateChange?

    EconomicConsiderations

    Stabilization

    Modeling andPolicy Design:IAMs

    Open Issues

    ConcludingRemarks

    Environmental,Economic, andSocial Impactsof ClimateChange inGreece

    References

    References

    M. Weitzman, 2009 On modeling and interpreting theeconomics of catastrophic climate change, Review ofEconomics and Statistics 91 119.

    M. Weitzman, 2010,What is the damages function forglobal warming and what dierence might it make?Climate Change Economics 1 5769.

    A. Xepapadeas (AUEB) Climate Change Athens, June 2016 84 / 84

    What is Climate Change?Evidence and Mechanisms

    Economic ConsiderationsDamagesClimate Change: A global externalityCharacteristics of the Climate Change ExternalityThe role of economic analysisInternational Climate Change PolicyParis, December 2015

    StabilizationStock stabilization and policy instrumentsCost of StabilizationThe Social Cost of Carbon (SCC)

    Modeling and Policy Design: IAMsStructureSome IAMsThe RICE-2010 Model (Nordhaus PNAS)RICE-2010 OutputThe Policy RampCosts and Benefits

    Open IssuesStrategic behaviorDiscounting for the futureUncertaintyStructural uncertaintyThe time profile of the policy rampKey policies that can affect climate changeMimicking the volcanoGeoengineering advantagesSRM disadvantages

    Concluding RemarksEnvironmental, Economic, and Social Impacts of Climate Change in GreeceClimate Change Impacts Study Committee, Bank of Greece, 2011Economic ImpactsRegional Vulnerability Analysis

    References